U.S. State Catastrophe Pools Reaching Record $900 Billion Loss Exposure

U.S. residual catastrophe pools have grown from “last resort” insurers into monster carriers that often dominate coastal markets and face a record total loss exposure, according to a report issued by the Insurance Information Institute on Monday.

According to III data, total exposure to loss in the FAIR, Beach and Windstorm Plans “surged” 1,517% between 1990 and 2011, or from $54.7 billion to a record $884.7 billion. Total policies in force more than tripled during the same period, from 931,550 in to a new high 3.3 million, the report states.

“Arguably many of the plans have become a home for the most highly exposed, wind-only risks—in other words the least attractive types of business,” the III report states, which focuses on U.S. residual pools in the form of Fair Access to Insurance Requirements (FAIR) Plans, Beach and Windstorm Plans, and two state run insurance companies in Florida and Louisiana. “In some cases, this has left plans with huge concentrations of risk.”

The report argues the primary reason for the dominance of the residual markets is that the “shifted” from their original focus and now cover both coastal and urban risks, sometimes evolving to become the largest property insurer in a state. In addition, the report says that population growth along the U.S. coast as also contributed to the residual pool growth, citing U.S. Census Bureau data that says that population growth in coastline counties has grown 40 million, or 84 percent, between 1960 and 2008.

“Exposure to windstorms and high property values combine to make Florida the state with the highest potential for losses and New York City and Long Island the second highest,” the report states.

Although the report does not offer a solution to managing the growth of U.S. catastrophe pools, it says “their exponential growth in the course of the last two decades has key implications for insurers and insurance buyers going forward.”

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